EP471 The Ups & Downs of Investing in Notes, Short-Term Rentals and Self-Storage with Tom Dunkel

Hey, I'm Tom Dunkle, founder and Managing director of Eagle Capital Investments. And Brian and I are going to have a great conversation about my experience in distressed mortgage debts, short term rental and also self storage and my ups and downs and the mistakes I've made over the years and even, maybe even a couple of successes or two.

Welcome to the Rental Property Owner and Real Estate Investor podcast brought to you by the Rental Property Owners association where real estate investors have found success since 1968. I'm your host Brian Hamrick from Hamrick Investment Group. This episode is sponsored by Green Property Management, managing everything from single family homes to apartment complexes in the West Michigan area. Find out more@greenpropertymgt.com and RCB and Associates, helping real estate investors and small business owners navigate the complex world of health insurance and Medicare benefits@rcbassociatesllc.com Get ready for the Midwest Real Estate Investor Conference in Grand Rapids, Michigan. Join hundreds of real estate investors for networking, learning and growth. Be sure to mark your calendars for April 24th and 25th of 2025.

Hello and welcome to episode 471.

Navigating the ups and downs of real.

Estate investing requires skill, strategy and the ability to adapt. But what if you could create a portfolio designed to thrive in any market cycle?

My guest today, Tom Dunkle, has spent over 28 years mast mastering the art of real estate and finance. As the managing director of Eagle Capital Investments, he's raised over 65 million in.

Private money and built portfolios in self storage, short term rentals and distressed mortgage debt.

Today, Tom will share his insights on.

Building predictable portfolios and the lessons he's.

Learned from weathering the booms, busts and bruises of investing.

Tom, welcome to the show.

Hey Brian, it's great to be with you and all the listeners today. I'm looking forward to our chat.

Tell us a little bit about yourself. I mean, how did you get started investing in real estate? And it sounds like you've been doing it for almost 20 years.

It's been a long time. So I'll try to keep my answer punchy because I tend to, tend to get a little long winded as I, as I age, you know. But yeah, I was, I got out of business school and went into corporate finance and mergers and acquisitions in the aerospace industry, which was a fantastic foundation for, you know, doing deals and understanding finance. We were working with private equity firms on Wall street and, and putting huge debt facilities in place and all this kind of thing. So it was, it was a ton of fun in that in my corporate Life, did over $1.2 billion of acquisitions and capital transactions. So that was a lot of fun. But come, you know, Fast forward to 2006. I got fired for my corporate finance job. And I looked at that as kind of the kick in the pants I needed to go out and do my own thing, which was what I had been wanting to do for a while. But it's hard to make that transition when you have golden handcuffs. I was a vice president at a publicly traded company. I had stock options and all those kinds of things. But when that day came, I knew that was really the opportunity to go and do my own thing. So 2006, I jumped into real estate. And of course it was probably not the best time.

That was before everything went over the cliff, right?

That's right. It was not the best time in history to not only jump into real estate, but also as kind of my first jaunt, you know, going into entrepreneurship and kind of running the show myself. So, so, you know, learned a lot of hard lessons those next few years as the market kind of crashed and I was spending a ton of money on marketing and I was, I was doing a lot of wholesaling and picking up some rental properties, residential rental properties, doing some fix and flips, and of course, you know, the market was just working against me the whole time. And you know, out of the, out of the ashes there, though, I just remain determined to, you know, do my own thing and, and figure something out. So. Especially because I had a wife and two young kids at home. But it was around, it was around 2010, 2009 that I discovered distressed mortgage debt. And so, you know, kind of one thing led to another there and we've built a great business over the last 14, 15 years in distressed mortgage debt. Our company there is called US Mortgage Resolution and we're pretty well known in our, in our little niche. But that business has generated almost $58 million of revenue over that time period, which isn't, which isn't bad for about a four person team. So we've done, done pretty well there. But, but along the way we were looking at ways to kind of redeploy those profits into other areas. So we've done some hard money lending. We built up a short term rental portfolio, and for the last five years we've been doing storage. So we, Bellrose Storage Group has acquired about 18 properties for close to $50 million of acquisition value. We've got about 4,000 units across seven states. So had a kind of A nice, nice run there as well.

I'm interested in the distressed mortgage. What niche did you, are you doing there? Because I, I've done a little bit of that myself and we kind of picked up some of the tail end of the, the Great Recession pipeline that was out there. What, what kind of distressed mortgages were you investing in?

So we were, we were buying charged off second mortgages on residential properties. So a lot of people thought we were crazy going into that and maybe we were. But you know, when you go into those really kind of nuanced niche areas I think is where you're going to find a lot of profits because you can buy a charged off distressed first mortgage, you know, for just, there's a lot of factors that go into it. But just to illustrate the point, maybe you'll buy that mortgage for 75 cents on the dollar. You're in first position, you're secured by the property, very secure spot. The second mortgage though, we felt like they were disproportionately discounted. So a charged off second mortgage that's in default, you might be able to pick that up for 20 cents on the dollar. So it gives you a lot of room to work with the borrower to come up with a way for, to create a win win solution so everybody makes money.

How have those fared over time and have you found them to be kind of recession resistant?

Like I said, we're buying these, these loans at such a discount. It gives us a lot of flexibility in how we work with the borrower. Because the reason we got into the distressed debt business, because we didn't want to own the property. So the last thing we want to do is foreclose. So we've done very, very, very little foreclosing over the years. And plus, you know, it's just that we feel like it's bad, bad karma for a small organization because yeah, obviously we don't want people, we don't want to put people out of their home. So if they want to keep the home, we're going to find a way to help them stay there. And so as a result, our redefault rate has been, has been really pretty low on our portfolio. And the other thing we've done along the way, Brian, is we've developed what we call a downline of buyers. So we'll, our company has grown to the point now where we're buying direct from the banks. And so we're getting the best pricing, the best execution there. And now we have a downline of buyers that we've accumulated over the years that are Tom And Joe of 10 years ago trying to get started in the business. Or maybe they just don't have access directly to the bank. And so we will sell loans to those investors. And so we're able to monetize these loans in a number of different ways. We can sell them, we can do some kind of discounted modification payment plan with the borrower, or we can actually do a discounted payoff with the borrower. So they're paying off less than what's owed, but still more than what we bought the loan for.

And where would you put the market right now? I mean, we're at the tail end of 2024. I've noticed big changes just over the past five years that my team has been investing in distressed notes. Where do you think we are right now in the market?

We are still getting pretty strong pricing when we, when we go to sell our, our paper. So it seems to be hanging in there pretty good. Even though, you know, the market's kind of, the residential real estate market's been in kind of a tough spot the last year or so with the run up in interest rates and, you know, transactions, you know, volume has really come to a screeching halt. But, you know, we're, the paper that we're buying is typically, you know, maybe it was originated three, four, five, maybe 10 years ago and it's gone into, it's gone into default maybe just in the last two or so years, which, which is actually good because for us, we kind of like there to be a little space between the default and when we buy the paper. Because there was some life event that happened that caused these people to stop paying. So maybe it was a, they lost a job or maybe they had a health issue or maybe it was a divorce or something else was going on with their life. So, you know, fast forward a couple years. You know, it's good chance that they've had some kind of resolution to that problem and now they're back in a position where they're able to start paying again. So that's been our experience, Brian. But as far as the overall market, you know, we love the distressed debt market. I think there's, it's a great place for investors to make secured returns, which is great. And if you're buying them, if you're buying just like regular real estate, if you're buying it right, you put yourself in a good opportunity to make money.

Let's talk about short term rentals. I mean, that's another asset class that you're investing in. Tell us about some of the ups and downs that you've encountered in that market.

Short term rentals have become kind of super popular the past few years with Airbnb coming on board. And Covid was a huge driver of, you know, people kind of get, especially getting out of cities and wanting to go and you know, maybe set up their, set up shop out in the country somewhere where they felt safer and not so close to other people where, you know, they're spreading infection and whatnot. So, so we definitely felt that in our portfolio, you know, we had a, we had a big kind of run up in cash flow and, and popularity in our portfolio and you know, things have definitely cooled off since then, Brian. But the pricing, we've definitely have the appreciation in the assets. But I have to say that our overall, our portfolio, the cash flow has been, has been less. The demand for, you know, that type of getaway has been, you know, has cooled off in this kind of post, post Covid world. But it's still, still an opportunity to, for investors to make, make good money. Because, you know, you don't need a ton of occupancy if again, if you're buying the asset, right? You don't need a ton of occupancy. You know, you don't need it for like the whole month to make money. You know, you can, you can gear that so that you're covering your, your mortgage and your expenses with just, you know, a handful of nights of occupancy and then the rest is, is gravy. So that's how we try to gear our properties there. But it's, it's definitely cooled off the last couple of years.

How do you pivot then going forward to say, okay, well maybe our cash flow is not as much, but how can we still turn a good profit? Like what have you had those conversations with your team?

Well, a couple of things there. I mean, number one, I think we, we ended up buying some properties and anybody out there who has a portfolio of even regular residential rentals, let alone, you know, short term rentals, you know, you buy, you do, you do your due diligence. You buy a property, sometimes it just, it just never performs to the level that you were expecting. And so we've, we've actually had to prune our portfolio because we ran into that with some properties where, you know, they were doing okay, but they just weren't hitting the numbers that we were expecting. And the other thing there, Brian, is some municipalities are kind of becoming more sensitive to the short term rental model and they don't want it. So a lot of municipalities are saying, hey, you know, we're not allowing short term rentals in our, in our municipality anymore. So we had to, we had to sell some properties because of that. And then of course, you know, when you sell a property even, even if the cash flow hasn't quite been where we wanted you, real estate has generally been going up in value. And even with the soft market we've had the last year or two, we bought them, right, and we've accumulated some equity. So the properties that we identified that were underperforming, we were still able to sell them at a profit.

Well, let's talk about self storage. Because self storage has been considered to be kind of a recession proof asset just because when times are good, people buy more stuff, they need a place to store it. When times are bad, they're downsizing, they need a place to store other stuff. I mean, what's been your experience with self storage? And you know, is that true?

Yeah, yeah, yeah, that's, that's a great question, Brian. I have to say, you know, we, we definitely steer away from saying recession proof. We certainly say recession resistant for the, the reasons that you just stated, which are, you know, when, when things are going well and the economy's going well, people are buying stuff and people tend to buy more stuff than they have room for. So they, you know, they use self storage as a way to, you know, hold on to their, you know, the extra stuff that they might not, it might be out of season. You know, they might be storing their, their kayak and their bikes for the winter, their holiday decorations, you know, whatever it might be. Well, and back to Covid. You know, Covid was a huge driver of self storage demand because people had that, that, that spare bedroom that, oh, hey, all of a sudden we've got to turn that spare bedroom into a home office. But they don't want to get rid of the bedroom furniture because this is just going to be temporary. And so they, they store that. And then you know, anyone who has, you know, may maybe some aging parents out there and they're downsizing and they hold on to the, to, to their, their heirlooms, right as they think of them. But then also, you know, in bad times, right, like we've, we've had some bad storms and some bad flooding recently and that's, that's, people will, will store their stuff in, in self storage if they think that their home might be impacted by a storm like that. Certainly after the fact, you know, it becomes kind of a necessity. And then of course, you know, with people, you know, there's of course divorce and other kinds of downsizing and displacements, death. You know, the four Ds that we call them are on the, on the bad side of things. You know, when things, when the economy's not going well or things are not going well, people need storage for, for those kinds of reasons. So it does tend to balance out whether times are, are good or bad. And that's, that's been the trend, Brian, for the last, you know, 40 plus years. The storage occupancy across the industry across the country has generally been in between 80 and 90% whether things are going well or things are going bad. So that we definitely like self storage for those reasons.

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It. And in your own personal portfolio, I mean, what's been your experience with self.

Storage? Our portfolio, you know, like across the industry when, when interest rates ran way up, you know, a year or so ago. And that really, you know, hit the brakes on the residential real estate market. And so a big driver of demand for self storage is the residential real estate market. So our portfolio definitely felt the impact of that, which was also felt across the industry. So our occupancies were down. We had to, we had to really lower our rates in a lot of places. So it was kind of a double whammy. And our occupancy is down and our rates are down. But that seems to have kind of worked itself out. And so we've been working hard at our marketing targeting. We're trying to target more commercial users. That was one thing we kind of learned from, from the, the slowdown in residential is, hey, you know, there's plenty of, you know, contractors and pharmaceutical reps. And you know, these people have home businesses that might need storage as a, as a solution. So we are in our marketing, we're targeting more contractors and those home business kind of people to hopefully switch our revenue mix from purely residential to a mix of residential and commercial.

Purpose. When you look at the three asset classes we just discussed, I know you've got a team, you've got systems in place, and you really are over time experiencing the ups and downs in each of those individual asset classes. How do you stay on top of that? What do you do with your team to say, okay, we're seeing a slowdown here, here's how we're going to pivot. Like how, what do you do to stay on top of it.

All? We're big proponents of kind of lifetime education, right? So we're always out. We join mastermind groups, we get involved with them, we go to the industry conferences, we read the industry publications. And of course we're looking at resources outside of real estate to learn about what's going on with the economy or what's going on with housing and those kinds of things. So it's really, it's not our first rodeo, right? We've been around for a while. And so we know the market goes in cycles. And so we just try to learn as much as we can from others that are in our industry, from resources outside of our industry. Because what we found over the years is when you not to pick on Marcus and Millichat but just as an example, you know, Marcus and Millichat puts out a lot of great information about what's going on in real estate. Right. They're an enormous real estate brokerage firm and they, they have a financing arm and they do all different asset classes. But at the end of the day they're still in real estate. So some of their material is kind of biased towards real estate. And oh, you know, we're going to be getting out of this. But if you, if you go and you look at resources outside of real estate. So even if you go to like Northwestern Mutual or you go to, you go to Schwab or you go to some of these, you know, more broad financial institutions and you read their stuff, you know, it's a little, you get a little bit different flavor than just kind of staying in the, in the real estate world. So you know, we're looking at all those different things and then of course, you know, we're looking at our actual portfolio. How are they performing? What's happening in that particular market? You know, unfortunately in one of our, one of our facilities we had a factory that shut down and a lot of jobs were lost. And so that demand kind of left the market and so things like that happen and then you just need to be able to see that pivot. And for us, we're big on marketing, so we have a marketing team that not only markets to investors to try to get investors to work with us and participate in our offerings, but we also have marketing for customers to place their goods that are at our storage facilities. So you know, we're looking at all those different.

Aspects. So we're recording this mid November, the election has happened. I mean, people are anticipating change. What do you see ahead for you in the next year? Three years, five.

Years? We are hopeful that, you know, more kind of business friendly administration is going to help to, you know, bend the, bend the cycle curve, you know, back up here. But it does, we've experienced it in the past where there is a lack lag. So I would expect maybe take 6 to 12 months maybe for that impact to be fully felt. But you're already seeing a lot of positive things happening in the equity markets. Crypto market's been going crazy. Interest rates interestingly have actually gone up a little bit recently. But as far as us going out and getting financing for our self storage facilities, we're still getting good execution on those in the 7% range. It's not as good as the 4% range that we were in a couple years ago, but still, I mean that's historically, you know, it's, that's a, that's pretty good. Pretty good. But we're, we're hoping that the, you know, if we do run into a recession, it'll, it'll be short lived. You know, we'd like to see maybe the Fed reduce interest rates another time or two. I hear, I hear a little chatter about that. But you know, at the end of the day, Brian, we are not in the interest rate predicting business, you know, so we focus on the things that we can control like how we run our self storage facilities. You know, how diligently do we use, you know, debt to finance our deals, you know, what can we do to reduce our expenses, what can we do to increase our revenue? So those are really the things that we're working on day to.

Day. Tell our listeners how they can find out more about you, get a hold of you and feel free to plug whatever you want to.

Plug.

Sure. This has been great, Brian, appreciate the time today. Yeah. So I'm Tom Dunkle, I'm currently chief Investment Officer at Bellrose Storage Group. But as we, as Brian mentioned at the beginning of the show, I'm also the managing director of Eagle Capital Investments, which is a brand new fund that I'm launching. And really it's an opportunity for investors out there to take advantage of my 19 years banging around the real estate industry and finding fantastic operators in all different asset classes. So in the networking that I've been, that I've done over the years, I found outstanding operators in mobile home parks, self storage, of course, short term rentals, multifamily lending, all these different industries, all these different asset classes. So I just invite investors to find me on LinkedIn. You can find me on Tom Dunkel. If you Google my name as it shows up here on the screen, you'll be able to find me pretty easily. There is a writer out there named Tom Dunkle that's not me, but I do have a lot of videos and such out there. But if you, if you direct message me on LinkedIn, I'd love to schedule a call with you and tell you about the exciting opportunities I'm seeing out there in these different asset classes with these outstanding operators that I've gotten to know over the.

Years. Tom, what's your favorite hack or.

App? I've always felt like people, myself included, like we've got a lot going on, you know, in our financial lives. So I've actually run, I've been using an app called Monarch over the Past probably I don't think it's quite been a year. But Monarch is a really, you know, it's simple to use but it has some sophisticated features for personal finance. So I, it hooks in with my bank accounts and I can track my investments in there and also my private investments and you know, my cash flow and my net worth and those kinds of things. So I think it's important for people to have some strong visibility into their personal financial lives. So I think unfortunately, you know, that that gets lost in, in kind of everybody's day to day busyness. But it doesn't take a lot of time. Once you get it set up, it actually pulls in all your transactions automatically and you can, you can you just track your, your income and your spending and your saving and you know, you can set goals for yourself and all that kind of stuff. So I would encourage folks out there do that so you can carve out some of your hard earned money to invest in assets like self storage and short term rentals, et.

Cetera. Does Monarch provide like a pfs, a personal financial.

Statement? I use it to create my personal financial statement, but it's not one of the kind of canned outputs of it. But it's very easy to pull the figures out of there and drop them into your personal financial statement.

Template. Well, Tom, appreciate you coming on the show to talk about the ups and downs of your, your career investing in real estate. You know, between the, the distress notes, the short term rentals and, and self storage and then you know, what you're, what you plan doing in 2025. I wish you the best of luck and I appreciate you coming on the show.

Today. Thanks Brian. It's been great to be with you and all the.

Listeners. I want to thank everybody for listening to this episode. I'm your host Brian Hamrick from Hamrick Investment Group and you can find out more about me by going to higinvestor.com that's H I G investor.com and you can also ask questions and join us on Facebook by going to RPOA Rental Property Owner and Real Estate Investor Podcast and remember to save the date for the Midwest Real Estate Investor Conference on April 24th and 25th of 2025 in Grand Rapids, Michigan. It's going to be an event you won't want to miss. Packed with invaluable sessions and opportunities to connect with like minded investors. Keep listening for more UPD and we look forward to seeing you there. This episode was sponsored by Green Property Management. Managing everything from single family homes to apartment complexes in the West Michigan area. Find out more@greenpropertymgt.com and RCB and Associates helping real estate investors and small business owners navigate the complex world of health insurance and Medicare benefits@rcbassociates llc.com you've been looking listening to the Rental Property Owner and Real Estate Investor Podcast brought to you by the Rental Property Owner Association. You can find out more@rpoaonline.org if you enjoyed this podcast, please go to itunes to subscribe. Rate and review.